Switzerland’s largest bank is teaming with mortgage-bond
pioneer Lewis Ranieri’s Situs to reduce headcount by shifting 30
of its bankers to the consulting firm where they are originating
and underwriting commercial mortgages, said Ken Cohen, the New
York-based head of the CMBS group at UBS. The lender will
continue to trade and issue securities linked to everything from
strip malls to skyscrapers.

The Zurich-based bank’s commitment highlights the
profitability of bundling property loans into bonds as buyers
scour the fixed-income landscape for higher-yielding investments
amid Federal Reserve efforts to stimulate growth by holding
interest rates at record lows. Issuance of the debt surged to
the highest in almost five years in September as investor
confidence grew the commercial property market is recovering.

“The CMBS market has seen a tremendous resurgence in the
past few months,” said Scott Singer, a principal at the Singer
& Bassuk Organization LLC, a real-estate firm that represents
property owners and developers arranging financing. “Late night
e-mails and weekend conversations with CMBS lenders have become
the norm again. A switch was turned back on and it’s driven by
demand in the bond buying marketplace.”

Lending Assignment

UBS teamed with Barclays Plc to win a $1.6 billion lending
assignment to General Growth Properties Inc. (GGP) last month, beating
out Wall Street rivals including Deutsche Bank AG, Morgan
Stanley, JPMorgan Chase & Co. and Wells Fargo & Co. (WFC) The group at
UBS ranked fourth in underwriting the deals in the first half of
2012, up from fifth in 2011, according to the Commercial
Mortgage Alert, an industry newsletter.

Even as some debt markets experience record issuance, UBS
plans to eliminate about 10,000 jobs as Chief Executive Officer
Sergio Ermotti, 52, shrinks its investment bank under pressure
from Swiss regulators to boost capital. The lender is retreating
from capital-intensive investment-banking businesses such as
fixed-income trading to rely more on its wealth management unit,
the world’s second largest, to boost returns for shareholders.

For UBS, maintaining CMBS is important to keeping an edge
in its money management business.

“The CMBS business dovetails beautifully with the wealth
management division,” Cohen said in a telephone interview.
“The wealth management clientele tend to be the ultra high-net
worth folks, and are likely to have some exposure to commercial
real estate in their investments.”

Situs Move

About 10 people are currently in the process of moving from
UBS to Situs, completing the bank’s plan to move most of its
CMBS originators and underwriters to the Houston-based firm,
Cohen said. The transition is unrelated to the job cuts
announced last month, he said.

“We embarked on this months ago,” he said. “It’s just a
more efficient way to do business.”

Situs, which provides commercial real estate consulting
services like due diligence on properties and underwriting to
clients including Wall Street banks. Ranieri is chairman,
according to the company’s website.

Ranieri, 65, a pioneer of loan securitization, started in
the mailroom at Salomon Brothers when he was 19 and built a
career as a trader and leader of the firm’s mortgage-bond
department through the 1980s. His efforts were chronicled in
“Liar’s Poker,” the 1989 book about bond traders by Michael Lewis.

Ranieri Investments

His firms’ other commercial real-estate investments include
Ranieri Real Estate Partners, Ranieri Real Estate Advisors, a
debt and equity broker, and Berkeley Point Capital, which
provides funds for multifamily buildings, according to its
website.

Steven Powel, the president of Situs, declined to comment
on client business.

UBS rose 0.8 percent today in Zurich to 14.53 Swiss francs.
It has advanced 11 percent since before the Oct. 30
announcement, extending its gains this year to 31 percent.

The investment bank will keep its advisory business, as
well as equities, foreign exchange and precious metals, and will
maintain some capabilities in rates and credit. About 2,000, or
28 percent, of about 7,200 front-office staffers will be cut at
the division globally, and total reductions at the unit will be
“north of 5,000,” Ermotti said on an Oct. 30 conference call.

Surging Sales

Sales of commercial-mortgage bonds are surging as yield-starved investors wager on a recovery in commercial property
after values rose 41.5 percent since bottoming in January 2010,
according to Moody’s Investors Service.

Wall Street has arranged about $33 billion in sales of the
debt this year, compared with $28 billion in 2011, according to
data compiled by Bloomberg. Issuance, though down from a record
$232 billion in 2007, is forecast to reach $45 billion this
year, according to Credit Suisse Group AG.

The extra yield investors demand to own top-ranked CMBS
rather than Treasuries has fallen to 1.11 percentage points from
2.47 percentage points on Jan. 3 and is down from the peak of
15.07 percentage points in November 2008, according to the
Barclays CMBS Aaa Super Duper index.

Rising sales are a boon for borrowers with loans coming due
as lenders compete to offer landlords the best terms. UBS can
leverage its relationships with property owners to boost
business, Cohen said.

“If somebody owns a shopping center, our ability to
provide that wealth management client with a financing source is
a great tie-in,” Cohen said.